Nightmare scenario for Emerson

Correctly, new Trade Minister
Craig Emerson
says he is putting free trade at the top of the agenda. However, next month he will face two trade-policy nightmares that will test his resolve. One is the World Trade Organisation’s rejection of Australia’s appeal against the WTO’s ruling that Australia’s quarantine barrier against New Zealand apples is illegal. This rebuke cannot be ignored.

The other is the Productivity Commission’s final report on Australia’s involvement in Preferential Trade Agreements (PTAs). The commission’s draft report found that the Department of Foreign Affairs and Trade had grossly exaggerated the benefits of PTAs. Economists dislike PTAs because they discriminate among trading partners and do not allow business to occur on its merits.

The apples mess highlights why PTAs are so poorly regarded – they are incapable of reducing protection for sensitive industries with strong lobbyists. Not surprisingly, our long-standing PTA with New Zealand – the Australia New Zealand Closer Economic Agreement (ANZCERTA) – has never tackled apples.

Stopping Kiwi apples being sold here is a mistake for Australia because it badly rips off our consumers, although growers get better domestic apple prices than otherwise. In this sheltered environment, the local industry has lost productivity. A key reason the apple mess has been tolerated is because our quarantine assessment system has no national interest test.

Moreover, the disease risk from Kiwi apples is not the problem Australian officials pretend. The WTO’s ruling – essentially that Australia is using quarantine as a trade protection measure – came as no surprise to people in the know. Australia should never have defended or appealed the case. Indeed, the whole WTO episode has been a flagrant waste of public resources.

The Productivity Commission’s finding on PTAs is equally embarrassing given Australia’s international advocacy of multilateralism. Pursuit of PTAs has distracted from the unilateral and multilateral approaches that underpinned our growth in the 1990s and has created room for the domestic backsliding on protection since seen in several sectors.

What should Emerson do? Both the quarantine and the PTA problems are transgressions of free trade deceptively promoted by their protagonists. On quarantine, Emerson and new Agriculture Minister
Joe Ludwig
should commission a review aimed at meeting the WTO’s complaints and installing an economic national benefit test. On PTAs, Emerson should accept the commission’s recommendations to stop new PTAs and put existing ones through a properly independent review.